AMBASSADOR INS. CO. v. TRULY NOLAN OF AMERICA

Each of the defendants in this action has made a motion to dismiss pursuant to Fed.R.Civ.P. 12(b). Two of the parties have also filed motions concerning pending discovery. A brief recitation of facts common to all the motions will be followed by individual treatment of each motion.

The Facts

Insofar as they are relevant to the instant motions, the facts of this case are as follows. Truly Nolan of America, Inc., an Arizona corporation, and Nozzle Nolan, Inc., a Florida corporation (the Nolan defendants) hired William Savich and Associates (Savich), a Georgia corporation, to obtain certain liability insurance. Savich in turn retained defendant Euclid Services, Inc. (Euclid), a New York corporation and insurance broker, to obtain coverage for the Nolan defendants. Euclid purchased the requested insurance from plaintiff, Ambassador Insurance Company (Ambassador), a New York corporation. After conducting an audit, plaintiff determined that it was allegedly due an additional $ 27,478.00 in premiums. This suit is an attempt to recover the additional premium allegedly due.

After this action was instituted, Euclid cross-claimed against the Nolan defendants. Subsequent to the filing of the cross-claim, this court dismissed the Nolan defendants from this action. The dismissal was predicated by this court finding that the Nolan defendants did not have sufficient minimum contacts with New York for jurisdiction to be exercised over them consistent with the demands of due process. See Ambassador Insurance Co. v. Truly Nolan of America, Inc., et al., No. 80 Civ. 1235 (August 15, 1980 S.D.N.Y.).

Discussion

1. The Nolan Defendants' Motion to Dismiss the Cross-Claim.

The Nolan defendants have moved for a dismissal of the cross-claim filed against them by Euclid. The motion is based upon this court's prior dismissal of the Nolan defendants from this action for jurisdictional reasons. Euclid's first response is that the Nolan defendants have waived any objections to jurisdiction over them in this action by not objecting to the jurisdictional basis of the cross-claim either in their answer to the complaint or their motion to dismiss plaintiff's complaint as to them. This argument is unpersuasive, however, because an objection by the Nolan defendants to the jurisdictional basis of the cross-claim would have been premature before this court dismissed the primary claim against them. The dismissal obviously occurred after the filing of the Nolan's motion to dismiss. It also occurred after the point at which they were required to file an answer to the cross-claim. When made, the cross-claim was clearly proper under Fed.R.Civ.P. 13(g), which provides for the filing of a cross-claim in a responsive pleading without the filing of a complaint, as normally required by Fed.R.Civ.P. 3, or service of process, as otherwise required by Fed.R.Civ.P. 4.

Next Euclid contends that the agency relationship between Euclid and the Nolan defendants constitutes an independent jurisdictional base for the cross-claim. While this may be the case, this question cannot be considered until personal jurisdiction over the Nolan defendants has been obtained by service of process as required by Fed.R.Civ.P. 4. Accordingly, this opinion should not be construed as in any way commenting on whether or not this court would have jurisdiction over a properly commenced action between Euclid and the Nolan defendants.

Finally, Euclid points to a number of cases decided by the New York State courts in support of the proposition that dismissal of the complaint against the Nolan defendants simply converts Euclid's cross-claim into a third-party claim. However, this court does not feel it is necessary to determine the correct disposition of this question under New York law. Instead this court will apply a recent decision of the Second Circuit dealing with the same issue now presented by the instant motion, Federman v. Empire Fire and Marine Insurance, Co., 597 F.2d 798 (2d Cir. 1979) (Federman ).

Federman involved allegations of false and misleading statements contained in a prospectus issued in connection with a public offering of securities. The plaintiffs in Federman sued the issuer, the underwriter, the law firm which helped to prepare the prospectus, and certain individuals within that law firm. Empire, the issuer, cross-claimed against the various co-defendants. Subsequently, a court approved settlement disposed of all the plaintiffs' claims, as well as most of the cross-claims. However, the settlement did not dispose of one of the issuer's cross-claims, against an individual lawyer (Goldberg) employed in the firm which had prepared the registration statement. After an extended discussion of applicable authority concerning a federal district court's discretionary exercise of pendent jurisdiction, the Second Circuit applied pertinent precedent as follows:

The entry of the stipulation of settlement resulted in prejudicial dismissal on the merits of Empire's cross-claims against codefendant Sitomer and additional defendant Aschkenasy. Empire's cross-claims against Goldberg for contribution and indemnity merit the same disposition in view of the fact that the settlement eliminated the underlying jurisdictional bases for such claims. The stipulation of settlement also necessitates dismissal of Empire's remaining cross-claims against Goldberg for damages and reimbursement, this being the recommended procedure when the jurisdiction-conferring claim is dismissed prior to trial. The fact that the federal claim was dismissed pursuant to a settlement rather than by judicial determination does not justify the application of a different rule.

597 F.2d at 811 (citations omitted).

Federman is clear authority for dismissal of the Euclid cross-claim against the Nolan defendants. Certainly there is a distinction between Federman and the instant case because the "jurisdiction-conferring claim" there was a federal question while here it is a common law claim based upon diversity jurisdiction. Id. However, this is not a material distinction. The underlying diversity claim by Ambassador served as the jurisdictional basis for Euclid's cross-claims in the same way that the securities claim in Federman served as the basis for the cross-claims there. If anything, dismissal of the cross-claim is more appropriate here, because the underlying claim was dismissed for lack of personal jurisdiction, rather than through a negotiated settlement. Acceptance of Euclid's argument is tantamount to saying that this court can obtain jurisdiction over one claim via another claim over which the court concludes there is no jurisdiction. Since the "jurisdiction-conferring ...

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